Cisco Systems: dotcom crash survivor seeks further reinvention

Founded in, and named after, San Francisco in 1984, Cisco Systems is one of a cluster of early Silicon Valley stalwarts that owe their existence to Stanford University.

The company’s two founders, then husband and wife Leonard Bosack and Sandy Lerner, worked for the university, where early breakthroughs in networking technology were made. Cisco’s first product was substantially based on Stanford’s own router software – to the point where the company eventually signed an official licence with Stanford for the system three years later.

The company launched at the right time and rode the wave of the networking boom to an IPO in 1990 with an initial market capitalisation of $224m (£172.2m). Its cash haul put it in the right position to capitalise on the rise of the internet in the second half of that decade, providing the physical infrastructure that underpinned much of the dotcom bubble. Most importantly, its large enterprise switches were essentially the only hardware capable of supporting the bandwidth requirements of major internet service providers, giving Cisco a near-monopoly.

As a result, by the midpoint of the dotcom bubble, it had grown to become the most valuable company in the world, with a market capitalisation of more than $500bn. Just two years later after the dotcom bubble burst, that had collapsed to just $51bn. It has recovered since then and now stands at about $153bn – making it still one of the world’s largest publicly listed companies, but dwarfed by tech sector market leaders such as Google owner Alphabet ($533bn) and Apple ($584bn).

During the past decade Cisco retrenched into its core market, while making continual attempts to become a household name, both in its own right and through acquisitions such as Linksys (known for its range of small office and home routers) and Flip (known for its standalone video cameras). But the hardware business was eaten away almost as quickly as it was set up, with commodity manufacturing in east Asia undercutting many of the products, even as the rise of the smartphone did away with many types of single-purpose consumer electronics.

The company’s focus is on the possibilities offered by the internet of things (IoT), the broad term for the return of small, single-purpose electronics. The difference this time is that those devices are networked, ideally allowing Cisco to focus on doing what it does best: provide the plumbing that allows the rest of the IT sector to do its work. The company has invested in a number of small IoT startups, including London-based, smart-products company EVRYTHNG, and in November opened an office near London’s Silicon Roundabout focused exclusively on the sector.

At the same time, the company remains a behemoth in the enterprise networking sector, with up to 7,000 employees in the UK alone. The majority of these employees are focused on providing services to corporate customers.

The company’s British operations are led from a sprawling campus near Heathrow, with satellite offices in central London, Reading, Manchester, Edinburgh and Motherwell. As well as the company’s hardware sales, its UK business encompasses a large educational segment, training IT professionals in networking technologies, and a consultancy business offering advice and support for building data centres, office networking and videoconferencing systems.

It’s a labour- and capital-intensive job, which explains why Cisco’s headcount dwarfs many of the younger technology firms that have become household names in the past decade. The 5,500 staff being laid off by the company, for instance, is more than a third of Facebook’s entire global workforce, but its net income is only slightly higher ($2.3bn compared with $2.1bn) – and unlike Facebook, that income isn’t growing.